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Question
The following information is for a collateralized mortgage obligation (CMO). Tranche A has a face value of $50 million and pays 6 percent annually. Tranche B has a face value of $50 million and pays 8 percent annually. All mortgages have maturities of 30 years.
If at the end of the first year, the trustee of the CMO receives total cash flows of $10 million, how are they distributed to Tranche A and B, respectively?
A. $5,558,628; $4,441,372.
B. $4,441,372; $5,558,868.
C. $4,000,000; $6,000,000.
D. $6,000,000; $4,000,000.
E. $5,558,628; $4,000,000.
Answer
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